Tag Archives: social balance

In 1846, Charles Dickens published one of his Christmas stories – “The Battle of Life”. Very few remember it now, although at the time it was as popular as A Christmas Carol. While it was a romantic story, it was also a metaphor for living – a reality that the mid-Victorians daily confronted – the battle of life.

As Peter Ackroyd noted in his biography of Charles Dickens:

“…the real importance of the story is to be found in its title. The Battle of Life was a phrase which meant a great deal to mid-Victorian Englishmen: it was even something of a truism in a world for which struggle and domination were the twin commandments, where the worship of energy and the pursuit of power were the two single most significant activities, where there was a constant belief in will, in collision, in progress. Darwin and Malthus both described “the great battle of life” and “the great battle for life”, the important confusion between the two phrases materially assisting the evolutionist’s case”

Samuel Smiles, maybe the exponent of what are known as “Victorian values” summed it up:

“The battle of life is, in most cases, fought uphill; and to win it without a struggle were perhaps to win it without honour. If there were no difficulties there would be no success; if there were nothing to struggle for, there would be nothing to be

achieved.”

Battles of life are still fought daily – for survival, for religious conviction, for self-esteem, for self-betterment, for the rights of others unable to fight for themselves, for equality.

In the 21st Century developed world, we often think that the battle of life has been won – we are economically well-off, pretty well educated and maybe complacent about our success. Yet, on a world scale, the battle of life daily persists and it is when we are confronted by the scale of that battle (as many British people were recently in Tunisia and as many were just ten years ago in London) that we are reminded that the Battle of Life goes on unabated.

In Dickens’s time, Britain was well underway with its industrial revolution and bestrode the world as an economic power house even if its working people were poor, with little chance of benefitting from the wealth creation. This gave rise to Chartism – working people’s attempts to gain access to power but this was dealt with by the oligarchy in power at the time in Britain. Our wealth generation was based on a world as supplier and this required a growing Empire from which to extract the raw materials it needed to feed the industrial base and to sell its goods – and a labour force here and overseas that provided it with unceasing supplies to make the machinery of the factories function.

We may have come a long way since then in this country but we remain pre-occupied with ourselves. Not much has changed in terms of Government and institutions since that time. We still have a House of Lords, we retain “first past the post” voting, London remains far wealthier than the rest of the country, we retain a certain disrespect for foreigners, we still want to play a major world role (although much of that is through our soft power status). We remain one of the five permanent members of the United Nations Security Council – still with a veto power. London retains its place as a major financial centre – which many believe assists our economy but many others rue its dependency on money laundering and the part it played in the 2007/08 financial meltdown.

Of course, the world is changing around us. China is now the largest economy in the world and while its per capita wealth is far lower than the west, the fact that it is so large means that, at the centre, it can aggregate massive amounts of money that can be used by Government. This is the real power of growth and economic vitality – the ability to amass funds centrally to spend on military might and security even as millions are still impoverished. On a smaller scale, North Korea still spends money on nuclear weaponry while so many starve.

In Africa and Asia, thousands try to escape the torment of their home countries to live aboard – leading to high-risk escapes on the high seas and many deaths and the recent scenes just across the Channel in Calais.

Industry is now global. The 19th Century British labour market that kept wages low and poverty high (and on which Marx and Engels – living in London and Manchester for most of their lives – based das Capital upon) is now also global – with an international labour market that has exactly the same problems as we had here two hundred years ago: low wages and desperate health and safety conditions (that have led to hundreds of lives lost in building the stadia for the 2022 World Cup in Qatar).

Meanwhile, it would be hard to extract much of this change from the recent General Election here. An election fought by the winning Conservatives on short-term tax breaks and a fear of the unknown – when that “unknown” was held to be Labour Party leftism and Scottish independence fears; when Liberal Democrats lost public trust over university funding; when UKIP gathered around 3 ½ million votes on the back of fear of the foreigners.

It was hard to feel motivated by the short-termism and fear-mongering that underscored that election. It was an election where Liberal Democrats were sent back to the 1970’s in terms of seats won and where they lost more votes in one election than could have been believed and when many argue liberalism should be the 21st Century political answer to all the changes and aspirations of a 21st Century world.

21st Century Aspirations – Economic Freedoms and Responsibilities

It has been educational to listen to the two Liberal Democrat contenders for that party’s leadership recently. Tim Farron and Norman Lamb, two out of the eight remaining Lib Dem M.P.’s in the House of Commons, both appeared before at the Institute of Public Policy Research at separate events.

They spoke and answered questions on a range of issues but the focus was on what liberalism meant to them.

Tim Farron told the meeting at the IPPR that he bases his liberalism on five key values: Freedom, Equality, Quality of Life, Internationalism and Reform. In his manifesto, a sixth value was added – a new economy.

Norman Lamb spoke about similar values and his experience of working as a Health Minister.

Both noted how their vision was formed by Jo Grimond and the debt they (and we) owe to William Beveridge – the man behind social services and the NHS, who identified the “five evils” of society as of squalor, ignorance, want, idleness, and disease as the drivers behind the need of government to be involved in society to a greater degree than before.

It is interesting to remember that Liberal have had to move a long way from the idealists of the 19th Century. While the Tories represented the landowners then, the new middle classes of that Century (who were behind the Free Trade movement as were the Liberals of that time) were not looking towards improving the lot of the common man (and certainly not women). The Factories Acts were gradually introduced throughout that Century as a result of pressure from outside Parliament and often against the deep-seated reservations of the capital class.

Liberals of the 21st Century now understand what J K Galbraith called the “social balance” between the public sector and the private to ensure that needs are met but that individuals are still able to model their own lives within a society that does not deprive them of aspiration and opportunity but actually seeks to improve those life chances. Liberalism also aims to ensure that the individual that lives most of their lives in “civil society” are able to do so with real freedom to enjoy and be fulfilled in that life. Life should not be just a centralized, top-down socialism nor a numbers-driven economics-only rat-race. Life is a complex mix where wealth creation is important (wealth being not just quantity of life but also quality) and so is ensuring that opportunity (such as good education, health and housing) is available to all so that individuals can become the most that they are able. When we also use our abilities on a global stage and enshrine this within the crucial notion of freedom (to believe in and voice your own views without fear), this is 21st Century Liberalism.

Because both Tim and Norman understand the critical elements of liberalism (something central to Nick Clegg – as he understood in a speech in 2012 to …but never reinforced outside that so that people would know what they were voting “for”), it is difficult to separate them on the basis of views held.

For me, the issues come down then, to this:

If Liberals want to become a force for real good in the UK (and world) and want to play a political role and not just be seen as a pressure group, they do not have to be just great campaigners, clammering for redistribution and fairness, but they have to ensure that there is a Liberal Economic Philosophy that enough people believe in.

Liberal Economics for the 21st Century

Having completely bought into all the other values of liberalism, it seems to me that the Liberal Democrats (and Liberal Party before them) have sometimes not grasped the central perceived need of most people – economics and economic freedom. The industrial revolution embedded the zeal for wealth creation amongst the capitalist class that has since become the underlying basis for how people see their lives.

Increased wealth creation has led to better health for those who are fortunate enough to live in the economically developed world and to longer and better lives. Illness does not mean death as it did in the 19th Century for us in the UK. Food is plentiful (although food bank use is on the rise) and we do not suffer from stunted growth as happens too frequently in the developing world – we suffer more from obesity. Education is open to all (albeit in different and not yet good enough for all). Our streets are relatively clean and we have a police force that is designed to serve and a set of laws that are mainly enforced without social stress. We have freedom of expression and democracy.

Much of this is down to wealth creation so that we can be said to be well up Maslow’s Hierarchy of need.

However, inequality is now increasing and the challenges of this country in a world where countries like China are now beginning to dominate economic growth are substantial. The impact is serious in areas like London where housing costs are so high because of the demand from those from overseas – many thought to be laundering questionable money through the London property market.

We also see scenes in Calais on a daily basis how those countries that are not providing economic freedom to their citizens – through corruption and war and mismanagement that leads to hunger and illness – drive their own people from those countries. This is an international problem – African migrants

So, how could Liberal Democrat economic philosophy be developed to tackle the issues that impact everyone – which everyone believes to be crucial to their lives and those of their families and within which the other values of liberalism can be seen to flourish?

We have to focus on responsible wealth creation in this country and overseas that marries the need to galvanise wealth creators (small businesses, risk-takers, new science, co-operation between public and private sector) along with a focus on great education that motivates and provides opportunity, understands how we develop sustainable growth (that assists the environment and connects us with it – not just seeing it as “natural capital” in the way that the 19th Century mill-owner saw workers as capital) and international. In the latter, we have to understand how the UK is a seller to the world and a buyer to the world but also part of that world. That world needs to ensure that the poorest are given opportunities and that sink-holes like corruption are eradicated. That equal playing field that liberalism feels so deeply is now an international playing field.

Economic freedom (the ability to grow our wealth) in a responsible way should be part of any liberal philosophy. But, it is not the 19th freedom to trade freely – it has to be a freedom with responsibilities attached. Together, economic freedom with responsibilities would help us win the battle of life that we all face.

This post was written in 2013 – pre-Brexit and Trump, before we realised how plastic was killing our oceans, when the northern white rhino was not extinct. It’s about value over volume, about the quality of life over the quantity of life – the sort of thing we should consider at the start of Spring or even at Easter-time.

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In the Christian tradition, it is Easter – named after Eostre, the Germanic Goddess of Fertility and Spring. It is that time of year, when we look for growth all around us. Yet, more prosaically, mention growth to most and we talk about recession and how ironically the current German goddess (Chancellor Merkel) is not so keen on helping those in need around the periphery of Europe. She wants them to help themselves.

Growing Pains

Michael Heseltine, Cabinet Minister under Margaret Thatcher, who recently provided a report to the UK Government on the regeneration of English cities that David Cameron and George Osborne have welcomed , told The Independent newspaper on Saturday, March 30, 2013 that: “the richer you get the less imperative there is” for people “to drive themselves”.”

BBC Radio 4 followed this up with a debate on Saturday’s Today programme between Mariana Mazzucato (an economist) and Terry Greenham (from New Economics Forum – NEF). Terry ended by calling for more quality rather than quantity in how we measure “growth” – that GDP as a measure was flawed.

Our Affluent Society

Back in May, 2012, I posted “The Affluent Society and Social Balance” which looked back at the writings of John Kenneth Galbraith (author of The Affluent Society) and wrote about how mindsets had not changed since he wrote the first edition in 1958. Quantity was still valued over quality – economics was still all about more things, not more quality of life despite our (developed world) ability to acquire so much stuff.

I spelt out four areas for concern as developed nations seek to address further “growth” requirements. They were characterized as follows:

Forty years ago, five, major elements were missing from or only sidelines in Galbraith’s analysis – issues which have become more central over time and which complicate the prescription that Galbraith proposed: They are repeated below:

1. Globalisation

2. The errors in GDP accounting – quantity vs quality

3. The Environment – valuing quality

4. Civil Society – ending the private vs public sector spat

5. Social Balance

1. Global Trading

The world is a different one from 1958 or even 1973. We trade globally and the developed nations increasingly use labour from the undeveloped nations to do low-cost, manual work (often in conditions we would not tolerate in our own countries). It is a 19th Century state of work but internationalised– where now, international companies tend to operate as the mill owners of old.

From a micro-economic sense that is understandable – each company is different and many act responsibly. However, from a macro-economic viewpoint and from an international political viewpoint, there are limited mechanics for equalizing health and safety laws let alone education and pay scales.

Galbraith’s concern was that we produced too much and that we should be able to make less in a country like the USA. When the work goes international, the responses to the problem have to as well.

2. Production by numbers: quantity versus quality

In an affluent society, production is made the cornerstone of all we do (the economy is central to all our decisions) because work is needed to secure income. Even in an affluent society, income at a certain level is deemed to be critical. Products of progressively less use (or utility) are sold (often solely on the back of advertising) and we buy them and this is meant to keep us in work and more buying goes on.

Of course, in an international labour market, that won’t always work (as Gandhi found out in the early 20th Century when England produced most of the cotton garments sold in India) and it has become harder to focus just on one country.

However, the global economy does not mean that products become more useful – much of what we make is simply wasting energy and resources. However, it is keeping people in work in many developing nations.

But, growth is measured by GDP and GDP is a poor measure of quality of life or even production. Quality of education, for example, is measured in GDP by its cost (an input) not an output. A £500 handbag is deemed worth the same as £500 worth of essential foods – no difference in utility is assessed.

The felling of a rare tree is “valued” at the cost of felling or its price in the market as a table. The value of a river is missed completely – unless over-polluted when its clear-up costs may enter as a cost in a nation’s GDP.

It is production by numbers, quantity versus quality.

3. Environmental Balance

While mentioning the issue of environment, the main topic of “The Affluent Society” is the social balance between public goods and market production. All these are made by people – so, the environment in which we live is ignored. The trade-off is not, of course, that simple (even though the Galbraith trade-off has never been seen to function). The environmental trade-off (our need to maintain our natural capital) is now being understood but remains relatively hidden in economic debates. Natural capital needs to be brought into any debate on affluence in society – our quality of life as opposed to the quantity of life.

4. Civil Society

To Galbraith, the game is between the market and the public sector and to most, this battle still exists as the only one. There was not much mention of civil society – where most of us spend most of our time – except through discussion of leisure time. Here, the trade-off was between productive working and spare time. I expect that this assumes that all non-productive time is spent on hobbies or watching TV.

The creativity and value of civil society – a huge array of organisations from sports to international development, from charities to women’s institutes – is normally missed completely by economists and thinkers on society. The problem is that it does not fit easily into econometricians’ computer simulations: more of the “if you can’t count it, it doesn’t exist” syndrome.

Of course, for centuries, people have been undertaking “good deeds” – the history of the 19th Century is full of examples of charitable activities. However, society is changing fast and as politics loses its appeal for so many (with parties genuinely fearing for their future), the role of civil society is growing and, in affluent societies, taking back more from the state that it lost to the state in the 20th Century.

This escape from the centre is to be applauded, but needs to be better understood.

5. Social Balance

Complete reliance on the market or on the centre (libertarianism or communism) may still appeal to some. The reality is that complexity is the norm. Society is a mixture of competing ideas and competing structures – out of which we muddle through and where individuals take centre stage and form organisations to make their voice louder.

Nevertheless, we should learn from history and our mistakes. Centrism is a doctrine of the defeated; totalitarianism a doctrine of the damned. There is no one answer but a constant mix of opportunities that society provides and where changes are constant in the way we answer our problems.

The mix of competing answers does no longer rest between public and private sector in an affluent society – that is a 20th Century doctrine or response. The response now has to take into account the social balance we want from our lives between products, social value, natural capital and civil society relationships in a global context not a rigidly national one.

This means being adult about the causes of change and grown-up about the challenges – it means being international in approach and understanding the complexity of the problem – not something that can be understood wholly by quantities or computer simulations.

As we grow materially (i.e. through the quantity of products we are able to manufacture) and bump up against the troubles of environmental degradation and massive disparities of wealth and conditions (on a global scale), the question to be addressed is how does a complex society best form itself to take the decisions it needs to maximize the value we all give and receive from this “affluent society”.

So, should we Give up on Growth?

Terry Greenham of NEF would propose (as does NEF) that this is what we have to do. As the developing world strives towards economic well-being as described by growth of GDP (gross domestic product), the developed world should (in NEF terms) re-balance the lives of their people so that quality is maximized and quantity is stabilized.

Of course, all our measures and motivation focus on quantity. Homo sapiens have developed over 100,000 years to seek food and shelter and the more the better. However, following Maslow (Hierarchy of Need), humans aspire to more than just “stuff” and as we gain wealth, the majority want more that is not measured.

A salutary valediction from The Independent’s Michael McCarthy (Environment Editor) today after 15 years with the newspaper, showed a pessimism that the human race could wake up to the qualitative disaster that it was causing in its rush to quantitative growth. Governments have responded with nothing in this debate – transfixed as they are by the glamour of GDP statistics. Heseltine is the first senior Conservative in the UK to state the obvious – that being the fastest growing economy is not necessarily what we all want. GDP is, in reality, meaningless as it fails to measure value as outlined above. A tree is not worth the amount it costs to fell and transport; a river is not worth just the cost of keeping clean – they have value beyond this that is not within the bounds of GDP.

Businesses, operating in the micro-economy cannot be expected to make the change – they are set up to benefit their shareholders and adjust to cultural and legal pressures (usually with some degree of resistance).

It ends up with Government having to lead. In very few nations is there an understanding of the problems that faces us – the race to grow GDP. Most completely misunderstand what GDP measures (and that includes most economists – centred as they are on econometrics the simulation of economies that reflect the 19th Century reality not the 21st Century’s).

We need to establish measurement (if that is how we work best) of the Gross Domestic Value – GDV – where Value takes over from product (things).

In this way, CO2 in the atmosphere can be valued; that tree being felled can be valued; humans can better value their time given back to society.

We should not give up on growth, but growth of value not product or income (based on the wrongful simulation of salaries, costs and sale prices).

National Value or Gross Domestic Value should become the target – not how many products we have. The question is whether there is a drive and energy to establish an understanding of what really is important or whether (as economist Georgescu-Roegen said in the 1970’s)

“Perhaps the destiny of man is to have a short but fiery, exciting, and extravagant life rather than a long, uneventful, and vegetative existence. Let other species — the amoebas, for example — which have no spiritual ambitions inherit an earth still bathed in plenty of sunshine.”

Michael Heseltine is only partially right. There is a limit to the drive and push people have to continuously get more stuff – but, there is probably no limit to our drive for more value. Michael McCarthy is, maybe, too pessimistic – we can drive human growth through value not products – GDV not GDP.

The Bureau of Investigative Journalism recently published an article (http://www.thebureauinvestigates.com/2012/09/25/schools-fleeced-by-it-scammers/comment-page-1/#comment-9117) following the exposure on Panorama (BBC 1) that schools in the UK had been “fleeced” by IT companies (“scammers”). The article and Panorama drew attention to schools which are burdened by the need to run themselves as businesses and are often ill-equipped to do so when set against the complicated requirements of funding, procurement, suppliers and the like.

The BIJ article missed the fact that most of the schemes that Panorama reported on were entered into while the FMSiS was in place!

Why is Finance so hard for non-profits (public and private sector)?

This does not just happen in Schools – it happens wherever greater knowledge is brought to bear.

So, the banks have run out of control and, five years’ later, we remain stunned that the financial regulators did not see this coming – or even understand the huge range of sub-prime schemes, poor management controls, over-leveraging, bad morality, lack of risk aversion, inability for banks to fail, dislike of customers and similar.

In the same way, companies like Enron fooled their highly paid auditors (some of whom connived with them) – we never learned much from that or from the countless, other financial scams that have been served up on unsuspecting publics since at least the south Sea Bubble in 1720 and for thousands of years before.

But, we expect more from public sector and the third sector organisations that supposedly guard our taxes and donations. What makes it so hard for them to adequately ensure that the financial and support arms of those organisations are able to be a good as all those they work with?

Where the incentives are

Of course, much has been written about how the wealth potential of banks suck in those with the highest intelligence and motivation (and maybe those with the lowest ethics) and that the regulators are filled with those who cannot compete – maybe those who failed to make it in banking themselves.

Enron was full of highly motivated and driven people who bought into a scheme (or schemes) and worked like fury to implement their scam / scheme. The manipulation of an energy market was not understood by the regulators and auditors just as auditors and clients failed to understand how Bernie Madoff was making such returns on their “investments”.

In a money-driven economy, which has created tremendous wealth for society, there are, at the margins and even more in the centre, incentives provided to people that lure those who are massively motivated and driven to participate – to work 24 hours a day, to spend their time working up schemes to make money and their companies profitable. Business is a money-driven part of the economy in a way that the non-profit sectors (be they public or private sector) are not. The latter are full of people driven (and maybe just as motivated) by other things – a passion for human rights, for education, for people, for society – but not for the thing that drives those they may meet at the interface of private sector and the non-profits.

As Galbraith wrote in The Affluent Society, public goods are always at a disadvantage in a market-driven economy and the crucial problems always exist at the interface between the two. I tackled this is a previous post – https://jeffkaye.wordpress.com/wp-admin/post.php?post=192&action=edit – and the inability of societies to establish how to provide the “social balance” to which Galbraith refers enables the problems to persist – such as the fleecing of schools in the UK.

Enabling the “social balance”?

The “social balance” (Galbraith ibid) is about how society reacts to private enterprise. The most obvious example is the automobile – private industry propels the development of cars but it is the public sector that provides the roads, traffic control and policing, emergency services and hospitals (usually), pollution control and similar. India is a great and recent example – http://uk.finance.yahoo.com/news/india-car-sales-soar-where-054302682.html. But, the ability of the private sector runs well ahead of the ability of the public sector to react.

Nowhere is this lack of social balance clearer than in the provision of expertise in “back office” areas in the public sector and in the third sector. While their front of office capabilities may be excellent, the non-profit sector cannot, in the main, recruit the best people (it cannot offer financial incentives to match anything like the private sector) and therefore its systems and processes fall well behind.

This is compounded by the continuous belief by government that they have to “do something” directly (like the FMSiS above) and in the third sector that anything spent outside of front end is a waste of money. Donors (whether governments, trusts and foundations, companies or individuals) suddenly have a different mindset as soon as they donate. How many would ask companies to stop spending on finance operations – yet, many donors insist that their donations can only be applied to front end work – the cause – and nothing to overheads. While it is good to keep overheads low, governance and financial management dictate that these “enabling” areas of any organization (like people management training) are as good as the front end operations so as not to stymie the work of the charity, NGO or pubic sector organization.

Having worked in all sectors (with most of my working life in the private sector) it is clear to me that the non-profit sectors are continuously starved of capability and expertise in the areas that could make them far more efficient and capable – not just to survive but also to enable far better work to be accomplished. If they work well it is in spite of the problems put in their way. Most don’t manage and the failures of the public sector to manage large IT projects, for example or the non-profit sector to survive continue.

So, how can the non-profits develop a response to the needed social balance so that they don’t get fleeced?

Pro-activity in the social balance

Governments and those who provide central governance to the non-profit sectors have undertaken so many actions and some have provided stability. But, each sector and those within it are challenged continuously.

What is needed is first, recognition that there is a problem. Each sector should assess where the main problems lie and government has to step up and signal that it will not do everything but begin to be the chief enabler for the non-profits. For example, restrictive funding for charities, whereby donors only provide money for front-end purposes, should not be allowed. The practice is akin to shareholders telling companies which part of the business their funding is allowed on. It is not a loan – it is a donation and restrictions mean more bureaucracy and less ability for the charity to manage itself.

If a donor believes that a charity spends too much on overheads, it can withhold donations just like a shareholder can invest elsewhere – but restricting funding in this way is counter-productive.

In the UK, this is something for the charities Commission and government to act on.

Second, there has to be a stepping up on ability – which will lead to improved processes and systems (although improvements in each need money as well and the proposal above is one way of directing more into this area).

This stepping up of ability should be driven by government who should require firms of accountants to do what the legal profession does – provide at least 2% pro-bono capability into non-profits. I have been highly impressed by law firms’ ability to do excellent pro-bono – less so by the finance industry.

CSR divisions of companies should also be driving their best finance people into non-profits – in a meaningful way to address the social imbalance.

Governments should look to reward those who go from the private sector into the public or third sector (even for a time) with tax incentives (much like students having to repay their student loans). It is not a great time to do this, but it would indicate a lot.

Third, the big accounting organisations should ensure that they focus more attention on public sector and third sector – understanding the problems and devising exams and maybe alternative paths to accreditation rather than the one-size-fits-all approach. Certainly, the CIPFA and IPSASB provide the basics for the public sector but the incentivisation for the best to go into that sector let alone education or charities / NGO’s is far less and the number of accountants that enter the charity sector (for example) with the same skill levels and drive as those in the private sector is small.

Fourth, trustees from private sector organisations have to become involved – not just from a governance standpoint but setting examples and putting the bar as high as it needs to go to make the enablers work. This is hands-on stuff not just remote governance.

Separate sectors, common interests

Except in a society where the three sectors don’t exist (e.g. communist states), the challenge is greatest at the intersections of society – where the sectors clash. Yet, as in the example of automobiles above (or any other transportation systems), different sectors live off each other – and the charity sector fills many of the gaps that society does not see fit to fill in private or public sectors.

The sectors need to be different, of course, but there does need to be a far better understanding of the problems that our economic structures throw up and how to deal with them or fleecing of our schools will recur but be seen to be a mere tip of the social iceberg.